How do you maintain the slingshot hedge as mentioned in Carles Cottle's book

[longthewings]

Don't ever do this if there is negative IV skew and the upside calls are dirt cheap. Overselling a bunch of cheap vol to finance the purchase of an expensive put is ALWAYS a bad idea.

 

[xandman]

Did you mean this guy?
http://www.amazon.ca/The-Volatility-Surface-Practitioners-Guide/dp/0471792519
The title says 'practitioner', but looks too academic. I will read natenberg,mcmillan,sinclair,baird,cottle before reading this, if at all.
I love Cottle because of his focus on actual trading, and not page long Taylor series expansions.

Maybe Dynamic Hedging by Taleb, but again....too academic. I hope there is an easier way.

Yep. That book. Taleb is good. He has a lot of practical stuff, just controversial at time. Afterall, he was a trader.

 

[newwurldmn]

Don't ever do this if there is negative IV skew and the upside calls are dirt cheap. Overselling a bunch of cheap vol to finance the purchase of an expensive put is ALWAYS a bad idea.

I don't think you can say ALWAYS to anything. Buying skew is not strictly a bad idea. I know some guys who made their careers and financial security for life being long skew at the right time.

 

[newwurldmn]

But I agree that this strategy seems overly Complicated. Why sell two call spreads when you can sell one call covered by the stock?

Further why not just sell the stock rather than hedging it out?

 

[studini]

What about if the guy just owns a bunch of cheap basis stock and doesn't want to friggin sell it? What about tax consequences? Just to name two reasons why he might not want to sell it. Or here's another reason. What if he thinks the stock will recover going forward and he thinks it's a good long term investment but is worried about the shorter term wings in the overall market or one bad earnings report coming up, say for example he is an employee of the company and has accumulated a large position over many years. DUH!

 

[galvinlee888]

Charles Cottle improves on the traditional zero cost collar like this:
1.Buy stock
2.But OTM put
3.Instead of selling an OTM call to finance the put, sell as many as necessary OTM call spread verticals to finance the put or generate a net credit.

But how to manage this position if the underlying goes to the moon? Do you just close out the spreads and ride out the underlying until you are satisfied?
Could you not have done the same with a traditional collar by buying back the short call?

What I am getting at is...how is the slingshot better than the traditional collar? It calims to be better as in it does not cap off the upside as much as a collar, but how so?

I should not say this but can't resist not to do do

The only

 

[galvinlee888]

Charles Cottle improves on the traditional zero cost collar like this:
1.Buy stock
2.But OTM put
3.Instead of selling an OTM call to finance the put, sell as many as necessary OTM call spread verticals to finance the put or generate a net credit.

But how to manage this position if the underlying goes to the moon? Do you just close out the spreads and ride out the underlying until you are satisfied?
Could you not have done the same with a traditional collar by buying back the short call?

What I am getting at is...how is the slingshot better than the traditional collar? It calims to be better as in it does not cap off the upside as much as a collar, but how so?

I should not say this but can't resist not to do do

Any strategy with limited profit target will hardly to achieve a positive trader equation. PM me and I can share with you a similar but much better approach

 

[newwurldmn]

What about if the guy just owns a bunch of cheap basis stock and doesn't want to friggin sell it? What about tax consequences? Just to name two reasons why he might not want to sell it. Or here's another reason. What if he thinks the stock will recover going forward and he thinks it's a good long term investment but is worried about the shorter term wings in the overall market or one bad earnings report coming up, say for example he is an employee of the company and has accumulated a large position over many years. DUH!

All perfectly reasonable reasons to use a collar to hedge.

 

[i960]

All perfectly reasonable reasons to use a collar to hedge.

Not necessarily gonna escape tax issues with that one - in fact one might create new tax issues in the process like the resetting of the holding period.

 

[newwurldmn]

Not necessarily gonna escape tax issues with that one - in fact one might create new tax issues in the process like the resetting of the holding period.

If the strikes are wide enough it's not considered a constructive sale